• Notification Date: 04-01-2023
• Notification No: N/A

BOT Annuities brought under GST

A recent notification issued by the Central Board of Indirect Taxes and Customs has omitted section 23A and related entries dealing with this section. The provision had exempted “service by way of access to a road or a bridge on payment of annuity”.  

As per the new rule, concessionaires who receive annuities from the National Highways Authority of India and state authorities for construction and maintenance of roads and highways will now have to pay goods and services tax (GST) on the toll amounts received. Effective from January 1, 2023, an exemption has been removed. The new rule makes it mandatory to charge GST at the rate of 12%.  

Tax experts said that previously, annuity under Hybrid Annuity Model mode was taxable under GST. Now, pursuant to this omission, annuity under Build-Operate-Transfer model will also be taxable from this month. As a result, very few new concessional agreements have been signed in recent years under the BOT-annuity model.   

Abhishek A Rastogi, Author and Founder of Rastogi Chambers said that the repercussions of withdrawal of the exemption are that the companies which receive annuities from NHAI, instead of toll from public, will be taxed under GST. As a corollary, depending on the contractual terms, the total cost for recipient may increase in few cases. He added that as toll to final consumers is exempt, there will be tax cascading in most of the cases. 

It is also to be seen whether the move will affect the overall cost of these projects and if it would have an impact on the end user or customers. In its 22nd meeting in 2017, the GST Council had exempted this annuity paid by NHAI (and State authorities or state-owned development corporations for construction of roads) to concessionaires for construction of public roads.